How to Read Heikin Ashi Candles Chart on MT4

Every trader has heard of candlesticks. But not all traders have heard of a Heikin Ashi chart. To know how to read Heikin Ashi Candles, one needs to understand the concept first.

Most of the traders take today’s technical analysis for granted. They assume it was always like this.

In fact, technical analysis has changed. Trading has evolved, so technical analysis has evolved as well.

Technical analysis represents the way traders approach the market. In our case, the Forex market.

It has evolved over time, from basic concepts to super-complex trading theories. Moreover, it combines approaches from all over the world.

So, traders choose the approach that fits them best.

The Western world embraced Japanese candlesticks with enthusiasm. Furthermore, it added new things and improved the concepts.

While Japanese candlestick techniques are well-known now, few are aware of the power of a Heikin Ashi chart. Those willing to know how to read Heikin Ashi Candles, have come to the right place.

In this article, we’ll explain:

What is a Heikin Ashi Candle?

How to apply the Heiken Ashi indicator on a mt4 chart

How to read Heikin Ashi Candles

Trading strategies from a Heikin Ashi chart

Advantages and disadvantages of using the Heikin Ashi formula

Moreover, we’ll cover common points between the Japanese and classic technical analysis approach. And, why candlestick charts are the preferred choice among retail Forex traders.

I’ll tell you what. At the end of this article, you’ll be fascinated about the Heikin Ashi chart’s power.And, the next thing you know, you’ll start searching for the Heiken Ashi indicator to see it with your own eyes. But, like every long journey, we must start with the first steps…

How to Build the Heikin Ashi Chart

Before Japanese candlesticks were introduced to the Western world, technical analysis had line and bar charts. Those exist today too.

However, ask any retail trader today what’s their favorite chart type. Invariably, the answer is a candlestick chart.

How come? What do candlesticks have that appeals to so many traders?

Several things we can mention here. First, candlesticks show great reversal patterns. and, they show them on the spot. Without any lag.

The head and shoulders pattern is a classic reversal one. But, by the time it forms and the price breaks the neckline, the market traveled a lot.

Moreover, it has a measured move. As such, most of the time traders end up trading only the distance from the neckline to the measured move. That’s too little.

Not the same with candlesticks. Second, a candle or a group of candles make fabulous continuation patterns.

They show future price action almost on the spot. However, continuation patterns on classic charts take their time.

Ride the wave. That is, they simply stay long until the first blue candle (bearish candle) forms. This is a two-way street. Sometimes the trend is so powerful, it is worth the risk. At other times, the first bearish candle wipes out all profits. And some more.

Use a proper risk-reward ratio. I mentioned earlier that a Heiken Ashi chart offers fabulous risk-reward ratios. The above example says it all.

How to Read Heikin Ashi Candles – Spotting Reversals

One piece of advice moving forward. Set the stop loss at the lowest point of the ACTUAL candle, and not the Heikin Ashi candle. This way, you’ll stand a better chance of surviving trading algorithms programmed to run classic stops.

For the Forex market, money management is everything. It means, from the two options listed above, we should favor the second one.

A proper risk-reward ratio uses 1:2 or 1:2.5 as parameters. Meaning, for every pip risked, traders look for two and a half pips.

Even such a “small ratio” is hard to get. Not when it comes to a Heikin Ashi chart.

The example above shows even 1:5 or more can be reached. Moreover, using the same principles, plenty of other long trades appear.

But, when to stop? When to stop looking for long trades?

When will a trend fade? Can we tell that using the Heikin Ashi chart?

Yes, we can!

The key stays with the candle’s shadows again. That is the candle’s part of the trend.

Let’s use the same EURUSD daily chart example. We know the trend is a powerful, bullish one.

The market took the whole 2017 summer to rise almost in a straight line. More than five great trades resulted. And, with risk control in place.

However, it can’t go up indefinitely. The clues come from the black (bullish candles).

Look for them to change the structure. Namely, we mentioned earlier a strong bullish trend has no shadows on the lower part of the candles.

This time, before a reversal happens, the trend will hesitate. Falter.

Trend Reversals Examples with the Heikin Ashi Chart

The examples here show how to read Heikin Ashi Candles. More exactly, how to use them to trade reversals.

Above we said the focus should be on bullish candles with both upper and lower shadows. Let’s have a look at the same EURUSD chart.

Every time the pair broke higher, the bullish candles had only upper shadows. That shows bullishness still.

That’s a sign to go long. For as long as the pair does this, use the trend trading strategy presented earlier.

What would make the daily EURUSD chart bearish? We already have a small, bearish sign, in a very strong, bullish trend.

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Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders. When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders. He was awarded a cup and a certificate at an official ceremony in his university.

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